THE Q&As

THELISTENING

PROJECT

CONTENTS

INTRODUCTION

UNDERSTANDING RIIO-2

THE RISE OF THE DSO

LOOKING AHEAD

INVALUABLE INSIGHTS

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4

5

6

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Here at the EIC we’ve been carrying out some exciting interviews for our new podcast series, The EIC Listening Project. The series covers all things utilities and innovation, with views and thoughts from some of the industry’s key players and those that innovate within it.

We’ve already had some fantastic feedback from our listeners:

“I have just listened to your podcast with Ian Cameron and wanted to say it’s fantastic. I will circulate it to the rest of Fundamentals to listen to.”Maria Vitale, Marketing & Communications, Fundamentals Ltd.

“It’s a great piece with lots of insight into the future of electricity and tells you what a DNO actually does”Adrian Cronin, Research & Strategy, Ervia

“Just to say… I think these are a great idea.”Eric Brown, Chief Technology Officer, The Energy Systems Catapult

In this booklet, we’ve hand-picked a selection of insightful answers to some of the most pressing questions surrounding current industry challenges and upcoming changes, from what to expect in the new RIIO2 framework, to the move towards a DSO model and the future of the energy system.

To listen to the full podcasts, scan the QR code with your phone camera or a QR reader app, visit

Spotify or iTunes, or go online to: www.eicpodcasts.libsyn.com

INTRODUCTION

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UNDERSTANDING RIIO-2: What is RIIO-2 and how will it affect the UK energy system?

Akshay Kaul, Director of Systems and Networks at Ofgem:

RIIO is [Ofgem’s] name for the framework of network price regulation that we introduced in 2013. RIIO stands, not for the Brazilian city of joy, but for the fact that the revenues of the network utilities are set to deliver innovation through incentives and outputs.

A key requirement of RIIO-2 is for it to respond to three forces of change - decentralisation, digitalisation and decarbonisation. The future is not going

to be like the past; it’s going to be very different and that’s a crucial thing for a price control to recognise. I don’t want to overstate the importance of the price control in terms of it being a driver of change in the system, because it is not. However, we are very keen for the networks that we regulate to be positive enablers of that change and supporters of new technology and disruptions that come in from the outside. It is in the interest of consumers that the networks work with these changes, rather than be blockers of them. It is due to this that we would like to design a set of price controls for RIIO-2 that allow networks to play this role in full and help us move towards a dynamic, decentralised, low carbon, digital energy system.

The innovation programme in RIIO-1 essentially takes shape in three components. The first is a Network Innovation Competition where networks, together with third party partners, can make bids for new R&D projects that they think will help us with the energy transition. The second is the Network Innovation Allowance. This is an allowance that we give to network companies. They don’t have to bid for it; it’s just part of their revenue settlement. 75% of that allowance is meant to be spent on working with other providers, including SMEs and other third parties. The third element is what we call the innovation rollout mechanism. This mechanism is meant to help us ensure that, when we find successful innovations, there is a way of diffusing them across the sector, through collaboration between different networks.

We are still undecided on whether we need to retain exactly the same three components heading into RIIO-2. We are really keen on making sure that innovation funding is directly addressing the main energy transition challenges, and that these are not difficult to spot. This focuses, once again, on those three forces; decarbonisation, decentralisation and digitalisation. One way in which they take shape is in the anticipated deployment of electric vehicles and the demands that they will put on the network and we want to see a lot more innovation in this area.

There will also be many R&D challenges in the use of hydrogen and we must think about how it is produced and transported through the networks. Therefore, there’s a fair amount of innovation to be done in to make the networks safe in transporting hydrogen, as a fuel, around the country. There will also continue to be a need for great innovation in digitalisation and the big challenge in terms of active demand management locally, both in helping the network providers balance their local system and facilitating the penetration of new technologies from the providers of technologies, such as vehicle to grid charging.

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THE RISE OF THE DSO: What is the DSO model of energy and what does it mean for consumers?

Akshay Kaul, Director of Systems and Networks at Ofgem:

RIIO is [Ofgem’s] name for the framework of network price regulation The DSO model is a trend within the power sector whereby the amount of energy produced and traded locally is set to be increased, in future, with less energy coming from the transmission system.

Historically, we haven’t had any system operator operating in quite the same way at the distribution level, and the reason has simply been that energy flow

used to all be just one way; from transmission to distribution. Now that we have an increase in the decentralisation of electricity production, and with the potential advent of electric vehicles containing batteries that can support vehicle to grid technology, there is an increasing need for active management of the local distribution networks. This is what is meant when we refer to distribution system operators - that the network at a distribution level needs to be managed in a way analogous to the national transmission system because you’ve got supply and demand both emanating on that network that needs to be balanced.

Ian Cameron, Head of Innovation at UK Power Networks (UKPN):

In terms of, ‘what is a DSO?’ I’m going to try and bring that back to layman terms. In the future, we’re going to have a high volume of decentralised energy. What that means is, for example, rooftop solar panels will be generating energy where you need it. The question here is how do you store that energy? The challenge that comes with this is intermittency- you may be able to generate energy when the sun’s shining but not when the sun goes down, and you don’t want to generate too much energy or else you’ll waste it. That balancing act is what a DSO would do; as a system operator, it’s a balance of load and generation. [Networks] are going to play a balancing role; we aren’t just going to be the motorway for energy; we’re going to become a bit of the tollgate, a little bit of the roadworks- the whole system operation.

Ultimately, what it means for customers is that they will have the ability, if they have generation on their roof for example, to be able to pass energy on and sell it to their neighbours. It can be kept locally, so if you generate locally for your community, you deliver it locally for your community. There’s a challenge on us all, whilst we transition to this distribution system operator, to make sure we keep conveying the right messages and that we’re bringing communities and customers along on the journey. There is onus on networks, and all actors in that value chain, to make sure that the consumers understand that message clearly and how it’ll benefit them. To do this, we have to try and bring the discussion back to what we call, ‘in the life of’ and what that means for everybody at home going about their daily functions. I try and explain this flexibility by saying, ‘You don’t need to do anything different. You still want to be warm, you still want to be able to watch telly, you still want to do all these things, but actually would you mind if your electric vehicle was charged at 3am in the morning rather than 9pm the previous evening?’- That’s flexibility and that’s what we’re interested in.

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LOOKING AHEAD: What are the current emerging trends in the industry?

Paul Jordan, Business Leader, Innovator Support and International at the Energy Systems Catapult:

From Catapult’s standpoint, we tend to focus on trends around digitalisation opportunities. We see tremendous opportunities linking

to the need for the creation of markets to do with flexibility, particularly within the domestic area, ‘behind the meter’ so to speak. If you can tap into

these opportunities, whether it’s energy efficiency or flexibility around energy management in the home, these solutions can then aggregate and link up to

opportunities surrounding network optimisation and the benefits that come from having what we often term as, a smarter system. Within that area, there’s a whole host of opportunities around demand side response, demand side management and active network management, such as linking into electric vehicles and vehicle to grid etc. These digital energy opportunities are huge, and a large emerging opportunity for the UK.

Phil New, CEO at the Energy Systems Catapult:

I think it’s also important to consider the external drivers of these emerging trends. We’ve just seen the IPCC (Intergovernmental Panel on

Climate Change) report and we’re seeing an increasing amount of attention being paid to the challenges of changing to a net zero carbon economy. This decarbonisation trend, which is already very strong and very real, is only going to get more intense as time goes on. Another emerging trend is the role of the consumer in the future shape of the system. For the last 40 or 50 years, we’ve had an energy system that’s been remarkably effective. It’s been very system-centric, and the end user has arguably been sort of a demand function. There’s now increasing evidence that the end user is going to potentially become the actor that drives the system. Rather than trying to encourage the end user to do what the system best needs, in the future the system may need to respond to what millions of end users are saying they want to do. This idea of having a consumer, end user responsive energy system will be a growing trend that asks very real and challenging questions of the whole design of today’s system, the rules by which it operates and the technologies that are deployed through it.

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Ian Cameron, Head of Innovation at UK Power Networks (UKPN):

I think you can start to look at emerging trends from a point of disruption. A lot of the external speaking I do is about disruption in the energy system. I argue that we’ve been disrupted for about ten years, if you think about the volume of distributed generation we’ve connected. Where the value lies moving forward, at least in the near term, is in products that help us on the low voltage network. Historically, you’d invest in the first mile of the network which would be your transmission system - your high power, high voltage generators. With the decentralisation of energy you start to see your low voltage network - the cables that go past your house, become the first mile of your network. In terms of investing in that, you start to find products that utilise that asset. The challenge then lies in looking for products and solutions that are affordable, as when you’re at the low voltage network you’re talking about high volumes- not single products and high values, but instead, hundreds of thousands of products at very low cost.  

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INVALUABLE INSIGHTS: What advice would you give to third-parties wanting to innovate within

the utilities sector?

Paul Jordan, business leader, innovator support and international at the Energy Systems Catapult:

The key thing here is the change that we’re seeing within the energy space right now, as innovation is very much driven by the consumer. I think, for anybody looking to innovate in this sector now, it’s not sufficient to just

purely think about having a good idea. You’ve now got to think about that good idea within the context of the consumer and how they are going to

effectively buy that solution in the future.

If you think about topics like vehicle to grid, that’s a massive opportunity for the sector and for innovation, but unless you think about how you factor that into the new commercial proposition, new business models, new market mechanisms, you’re not going to be successful. Any innovator coming through really needs to think about that wider context, the commercial model, or the business model, and how to drive a new solution through that. They are going to need to be able to navigate that future landscape, and that’s exactly where the Energy Systems Catapult (ESC) can help.

Phil New, CEO at the Energy Systems Catapult:

Well, that’s the ESC working in partnership with the EIC, of course. There’s a range of tools, publications and online resources that’ve been put out there to try and help innovators navigate the, sometimes quite alarming, complexity of the sector. I’d like to reinforce the fundamental importance of innovation to the future of the sector. I think that many of us would say that we’re confronting a once in a generation chance to transform the sector.

The drivers are coming from above in terms of the push to decarbonise, but they’re also coming from across society in terms of digitalisation and the changing relationship that communities and individuals have with institutions. The time is ripe and the need is great for innovation. It’s got to be a two way relationship and the sector’s got to figure out what more it can do to support and encourage innovators, meanwhile the innovators themselves need to figure out how best they can engage with the sector.

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Ian Cameron, Head of Innovation at UK Power Networks (UKPN:

There’s a huge amount of funding in the UK; between the regulators, the government and private investment, it’s a fantastic place to be andnetworks want to collaborate in this space; they use vehicles like the

EIC to facilitate that collaboration.

If you think about the stimulus packages, just under the various ones in the regulated sector, you’ve got network innovation allowance which is, in our case,

half a percent of our revenues every year. This equates to about £8 million that we get to try new things. 75% of that NIA money doesn’t go to our business; it’s going external, stimulating markets and providing an avenue for those who have ideas, to be able to deliver them through the likes of the EIC.

My key message would be, keep trying- if you aren’t being heard, shout louder. Come and see us [the networks] personally but, also, give it a go.

Akshay Kaul, Director of Systems and Networks at Ofgem:

It’s good to have good ideas. It’s good to have big ideas. I would advise starting with the consumer experience in mind. Think about the ways in which the supply and consumption of energy could be made more reliable and cost effective for them in this changing environment. SMEs should think about the sort of technological segments in which they have their core competencies, because when you’re trying to get into this sector, particularly the network sector, we think it is important to have ideas that are implementable within the context of an energy network, and working with network companies is a clearly big part of that.

To listen to the full podcasts, scan the QR code with your phone camera or a QR reader app, visit Spotify or iTunes, or go online to:

www.eicpodcasts.libsyn.com

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Suites 1 & 2, The Technology Centre,Inward Way, Ellesmere Port,Cheshire CH65 3EN

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